Option Investor
New Plays

New Option Plays

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LEH None None

Play Editor's Note: Keep an eye on SRS, which is the REIT ultra-short ETF, and the IYR, which is a normal REIT ETF. It looks like the sector is heading lower but watch for a pull back before initiating positions. More aggressive traders may want to jump in now. Brave traders might also want to consider bullish positions on the IYE, which is the iShares for the oil and gas index. If you do, use a tight stop loss.

New Calls

Lehman Brothers - LEH - close: 29.48 change: -2.81 stop: 27.75

Company Description:
Lehman Brothers (ticker symbol: LEH), an innovator in global finance, serves the financial needs of corporations, governments and municipalities, institutional clients, and high net worth individuals worldwide. Founded in 1850, Lehman Brothers maintains leadership positions in equity and fixed income sales, trading and research, investment banking, private investment management, asset management and private equity. (source: company press release or website)

Why We Like It:
Once again Lehman Brothers was the big story today. As was expected the company pre-released its earnings report to help stem fears on Wall Street. Management said that LEH's earnings will be a loss of $5.14 a share. That's huge. Last year this time they earned $2.21/share. Analysts were expecting LEH to post a loss of just $0.22/share. The positive news was that LEH has reduced a lot of its exposure and is raising capital. The company said they will raise another $6 billion in capital between common stock and new debt offerings. They have already priced a $4 billion secondary of common stock at $28 a share. Today's volume in LEH was massive. The average daily volume is about 26.5 million. Today the stock traded more than 168.3 million shares. I suspect that this is a short-term bottom of LEH. Now that the news is out it should alleviate Wall Street's uncertainty about the company. The market hates not knowing. We are suggesting readers buy calls. We have two targets. Sell the majority of your position at the first target. Our first target is the $34.00 mark. Our second target is $36.25. Please note that we do NOT want to open positions if LEH gaps open above $30.50 tomorrow. This should be considered a higher-risk and much more aggressive play.

Suggested Options:
We are suggesting the July calls. Options are available at $1.00 increments. If you don't like our suggested strike, pick another one!

BUY CALL JUL 34.00 LEH-GY open interest= 8351 current ask $1.25
BUY CALL JUL 35.00 LEH-GG open interest=13840 current ask $1.00

Picked on June 09 at $ 29.48
Change since picked: + 0.00
Earnings Date 07/27/08 (unconfirmed)
Average Daily Volume = 26.5 million

New Puts

None today.

New Strangles

None today.

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